TY  - JOUR
AU  - Ball,Laurence
AU  - Romer,David
TI  - Sticky Prices as Coordination Failure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2327
PY  - 1987
Y2  - July 1987
UR  - http://www.nber.org/papers/w2327
L1  - http://www.nber.org/papers/w2327.pdf
N1  - Author contact info:
Laurence M. Ball
Department of Economics
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7605
Fax: 410/516-7600
E-Mail: lball@jhu.edu

David H. Romer
Department of Economics
University of California
Berkeley, CA 94720-3880
E-Mail: dromer@econ.berkeley.edu
AB  - This paper shows that nominal price rigidity can arise from a failure to coordinate price changes. If a firm's desired price is increasing in others' prices, then the gains to the firm from adjusting its price after a nominal shock are greater if others adjust. This "strategic complementarity" in price adjustment can lead to multiple equilibria in the degree of nominal rigidity. Welfare may be much higher in the equilibria with less rigidity. In addition, with multiple equilibrium degrees of rigidity, the economy may have several short-run equilibria but a unique long-run equilibrium.
ER  -